It’s been a very subdued session of trade in the currency market with very little newsflow to drive dealing as euro and cable drifted lower while Aussie showed some relative strength.

With literally no meaningful data on the docket currencies continued to oscillate around key numbers as EUR/USD moved on either side of the 1.2700 figure while cable hovered above but finally gave up the 1.6100 handle.

The majors remain at a virtual standstill ahead of Wednesday’s FOMC announcement which promises to be the marquee event of the week. Although few market players expect any significant news out of the Fed, traders will nevertheless look for any clues in policy changes as policy divergence is the primary driver of price action in forex at this time.

We continue to believe that the Fed will reiterate its basic message on ending QE while refusing to offer any concrete schedule for rate normalization. Despite the fact that US economy is operating at a relatively respectable growth rate, the Fed is keenly aware of the potential drag to growth from both Europe and Asia and will not tighten policy until Europe especially shows some signs of stabilization.

With no inflationary pressures and a moribund housing market, the Fed feels absolutely no pressure to change it policy course and such posture could provide a modicum of support for both euro and cable later in the week.

In the meantime today’s US session will bring the Durable Goods data as well as consumer confidence numbers. The Durable Goods report which is expected to rise slightly from the month prior could provide a modest boost for the buck if it beats the estimate. A stronger print would suggest that US capital spending remains relatively healthy and could result in upward gains in Q3 GDP.

In addition Consumer confidence numbers should rise as well given the bump in U of M data last week and the sharp decline in gasoline prices that have acted as a de facto tax cut. USD/JPY has remained well supported at the 108.00 level and the pair could try to make another run at the 108.50 target as the day proceeds if US data proves supportive.